While U.S. inflation has been low for the last several years, many experts still believe double-digit rates are on the horizon.
Between still-low interest rates, high spending, unfunded liabilities and constant money-printing, these advisors expect the government’s measures to catch up with the currency in the next 10 to 15 years. “I feel that with the national debt over $17 trillion, $80 billion printed per month and unfunded liabilities at over $126 trillion, at some point in the future that’s all got to have severe consequences,” said Randall Reinwasser, CFP with Solitude Canyon Investment Advisors.
For clients nearing the ends of their careers, the compounding effects of 20, 30 or even 40 or more years of inflation may severely impact their spending power in retirement. “Everyone should be worried about inflation, especially those in or approaching retirement,” said Dan McElwee, executive vice president at Ventura Wealth Management. “Central bankers around the globe have been focused on preventing deflation and have tried to create inflation by pumping liquidity into global markets. This happened at a time when the Baby Boomers, en masse, decided that they only wanted safe assets, pushing yields on those investments even lower.” Over the next decade, this combination of low yields and rising inflation could make it far more difficult for even well-to-do retirees to maintain their current living standards, he said.
Social Security Implications
Aside from its impacts on retirees’ assets and investments, rising inflation would also decrease the overall spending power they derive from Social Security. At roughly 1.5 percent, the cost of living adjustment already lags slightly behind inflation, and the recently proposed “chained” CPI would increase the gap even further. “Don’t count on the COLA to maintain your standard of living,” Reinwasser said.